A.M. Best predicts “prolonged” soft market for Canada

A prolonged soft market may lie ahead for the Canadian property and casualty insurance market, according to a special report by A.M. Best.
There’s no room for complacency as Canadian property/casualty insurers enjoy another solid year, the ratings agency wrote in a press release announcing the availability of the Sept. 18, 2007 report. Profitable underwriting, growth in investment income and capital gains have boosted pretax net income, as A.M. Best Co.’s rating outlook for Canada’s property/casualty market is stable.
But abundant margin in the industry is setting insurers up for a soft market cycle.
A.M. Best said its outlook reflects stronger capitalization in the Canadian market; stricter underwriting standards; improved expense management; below-average claims frequency and stronger investment markets.
Improved underwriting has driven the industry’s success in recent years, with 2006 net underwriting income of nearly C$2.8 billion on about C$30.8 billion of net premiums earned a modest underwriting ratio of 91.5%, A.M. Best announced.
At the same time, despite underwriting gains for the industry in 2006, the automobile line’s net loss ratio deteriorated to 67.6 in 2006 from 64.5 in 2005. Larger companies are pursuing market share, while regulators maintain pressure on auto insurance pricing in the next 12 to 18 months, A.M. Best notes.
Milder weather patterns reduced the net loss ratio in personal property by 3.1 points to 65.2 in 2006.
Assumed and net premiums written for registered reinsurers in Canada fell for the fourth straight year, probably due to freezes and rollbacks in auto rates, combined with higher net property retentions, A.M. Best notes.
The ratings agency described accident year reserve development as favorable, with 2006 reserve releases yielding nearly Cdn$1 billion of pretax net income.